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Delta Air Lines, Inc. Is Clear for Takeoff (DAL)

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It's been a year of headwinds, but Delta Air Lines, Inc. (NYSE: DAL ) looks ready to take off in more than one way. For bullish investors, a protected long call in Delta stock is a cost effective way to hop on board. Let me explain.

Delta Stock Is Clear for Takeoff (DAL)

For its part, Delta stock is off nearly 30% since hitting a multi-year high last December. But conditions appear more favorable, both on and off the chart.

Reduced pricing power, system outages, terrorism, the Brexit vote, rising fuel prices - all have arguably contributed to the decline in Delta stock and airline peers, such as American Airlines Group Inc (NASDAQ: AAL ) and United Continental Holdings Inc (NYSE: UAL ).

Last week, Delta stated its fourth quarter U.S. capacity should grow by just 2.5%. Coupled with similar news from Southwest Airlines Co (NYSE: LUV ), the announcement assuaged ongoing investor fears of an oversupplied market.

Delta's lower capacity forecast should allow the carrier return to "positive unit revenue growth," boosting passenger revenue per available seat mile, a key efficiency metric, which has been under pressure the past year.

Delta Stock Daily Chart

Click to Enlarge This year has not been a kind one for bullish airline investors. That's especially true when comparing DAL to the S&P 500 Index or Dow Jones Industrials Average , which are trading positive on the year and just off all-time-highs.

But the technical forecast is looking up for DAL stock.

The fact is, corrective activity like what we're seeing in Delta is a necessary evil. The action ultimately removes prior excessive and overconfident forecasts of "blue skies forever," and returns shares to a position of relative safety.

Given Delta stock has, at its worst, shed about 40% of its value, it's fair to say shares are in a safer position. This appears more true as the price action has resulted in a flash-crash inspired double-bottom off the 200-week simple moving average.

And now that DAL has established a higher low pattern the last couple weeks, Delta shares look ready to take off from the large bottoming formation.

DAL Stock Long Call Strategy

Reviewing the options board, the DAL Oct $38 call is attractive at its current price of $1.22. Premiums are relatively cheap right now and Delta stock's earnings are slated for Oct. 12. The combination should help counter some of the impact of time decay.

The limited contract risk (slightly more than 3%) is compelling, especially with an earnings event is in the picture. On an expiration basis, the premium for this Delta stock call breaks even slightly below the recent high of $39.39.

Lastly, with Delta's earnings announcement more than a week in front of expiration, the opportunity for a profit increases given the time premium, as well as the possibility for much higher prices in DAL fueled by a bullish report.

Investment accounts under Christopher Tyler's management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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